The last couple of weeks have seen renewed turbulence in markets. Bond yields, particularly at the long end, have moved out sharply and this, in our view, has been the primary factor behind the FTSE retreat. The maintenance of low sovereign bond yields seems to us as critical to Central Bank thinking and we anticipate a resumption of the ‘monetary put’ if bond yields expand much further. We view the bond move as turbulence rather than a fundamental shift in the curve.
Walbrook marginally upgraded 2014 UK GPD and beyond today to 0.8% in 2013 (unchanged) 1.2% in 2014 (up 0.5%) and 1.5% in 2015 to 2017 (up 1.5%) based on anticipated slightly higher consumer leverage and the impact of monetary policy of real assets, notably real estate. Walbrook maintains the view that the underlying imbalances remain and that that new bubbles are being created as a result of the extremity of policy. The full note is available at email@example.com
Walbrook, together with Steve Baker MP, spoke to clients of the Portuguese Investment Bank Espirito Santo at a Breakfast Conference outlining how investors should position themselves in an age of 'monetary activism.' The debate focused around the embedded nature of fiscal deficits, especially in the UK and Europe, and the probable response of first choice, particularly in the UK, monetary activism.' A more positive case was made for the US economy where it was argued investors should bias equity portfolios together with a modest 'risk on' sector stance.
Walbrook was privileged to speak to over 200 6th Form pupils, from the South West, at Sherborne School on 'The Eurozone : The Problems and the Future.' The talk focused on an overview of how the Euro developed, the divergent strains within the system then concluded with a series of scenarios and possible outcomes Please contact firstname.lastname@example.org for a copy of the presentation.
With reflection, the most significant Budget announcement was the Chancellors decision to review the MPC's formal remit. While the inflationary target will remain unchanged, investors should be in no doubt the reality is the Central Bank is moving towards a mandate that is designed to be yet more stimulatory. This is, in the long term, more significant than the news that the deficit remains highly embedded, or micro tinkering in the housing market, or infrastructure spend. While we question the long term wisdom of this policy it is undoubtedly positive for real assets.